HMV UK heading back into administration

HMV is heading back into administration after a disappointing Christmas quarter. KPMG are set to be appointed as administrators and, while the shops will continue trading in the short term, more than 2200 jobs are at risk unless a buyer can be found for the business.

The iconic British music retailer first fell into administration in early 2013 as the company struggled to service debts that had been run up as the company tried to diversify beyond the sale of CDs, DVDs and games in the late 2000s. The business was bought out of administration by restructuring specialists Hilco, which kept a streamlined but substantial network of stores open.

Hilco put the focus back on HMV’s core products – ie music, movies and games – even though it was clear that the sale of physical discs, whatever form of entertainment they contained, was going to continue to decline for the foreseeable future.

The new owner’s strategy from the off was to keep costs down, first by renegotiating deals with the music, DVD and gaming companies, and then by renegotiating rents with its landlords, relocating stores to more cost efficient sites where necessary.

The all new HMV did have another go at moving into digital music – the retailer having launched a number of failed digital ventures over the years – but selling discs on the high street was always the priority for the new management team.

The aim, presumably, was to get as much out of physical music, movie and gaming products as they could while entertainment consumption continued to shift online, exploiting the firm’s position as last man standing (in terms of being a national chain selling CDs and DVDs) and capitalising where they could on things like the vinyl revival.

In the main it worked, for a time, with the decline in CD sales in particular slowing down, and the all-new HMV having a few years of solid trading.

But it seemed inevitable that – as physical product sales continued to fall – even the streamlined, super-cost-efficient HMV would reach a point where the business was no longer viable. Especially when you throw in big bad Amazon as a rival, the growth of direct-to-fan sales in the music space, and generally challenging times for all retailers on the British high street.

In a statement to media this morning, Hilco and HMV boss Paul McGowan said that the latest slump in DVD sales and high business rates were two key factors in the decision to put the company into administration at this time. It’s thought rescue talks with suppliers, especially in the music industry, did take place, but without a solution being found.

McGowan said: “During the key Christmas trading period the market for DVD fell by over 30% compared to the previous year and, whilst HMV performed considerably better than that, such a deterioration in a key sector of the market is unsustainable”.

“HMV has clearly not been insulated from the general malaise of the UK high street”, he went on, “and has suffered the same challenges with business rates and other government-centric policies which have led to increased fixed costs in the business. Business rates alone represent an annual cost to HMV in excess of £15m”.

McGowan concluded: “Even an exceptionally well-run and much-loved business such as HMV cannot withstand the tsunami of challenges facing UK retailers over the last twelve months on top of such a dramatic change in consumer behaviour in the entertainment market”.